Published 4:00 am, Thursday, August 19, 2004

Shares of Synopsys Inc. were hammered in extended trading on Wednesday after the maker of chip design software issued a revenue and earnings forecast that was drastically lower than Wall Street estimates.

The Mountain View firm's shares fell $6.06, or 28 percent, to $15.22 in after-hours trading. The stock had closed Wednesday at $21.28, up 98 cents, or 4.83 percent, during regular trading.

While Synopsys is not a bellwether tech firm, the software company's business outlook does help give some indication of the health of the semiconductor industry, which in turn gives clues about the overall high-tech world.

Synopsys' third-quarter results were also disappointing as sales fell 6 percent to $281.7 million and profits narrowed to $41.8 million (26 cents per share), compared with $300.4 million of revenue and $48.5 million (30 cents) of profit in the same period a year ago.

Two weeks ago, Synopsys warned that its revenue and profit would come in lower than its earlier forecast.

"In July, our customers became markedly more cautious about extending commitments and spending cash. This caution was triggered by some inventory buildup and a lack of visibility," said Aart de Geus, the firm's chairman and chief executive officer.

But the big surprise was the firm's revised outlook.

Synopsys said it expects fiscal fourth-quarter revenue to come in between $220 million and $240 million. Wall Street analysts polled by Thomson Financial were expecting a range of $277 million to $329 million.

Even more stunning was Synopsys' forecast for its next fiscal year. The firm said it expects revenue to reach about $940 million with earnings per share coming in between 28 cents and 38 cents. Those figures are vastly smaller than Wall Street expectations of sales in the range of $1.2 billion to $1.4 billion, and earnings per share ranging from $1.35 to $1.90.

During Wednesday's conference call with analysts, de Geus wouldn't say the semiconductor industry's upturn following the Internet bust is over.

"I don't want to be the one calling the downturn in the semiconductor cycle," he said. "But there is caution ... and a question mark."

Dennis Wassung, an analyst at Adams Harkness Inc., said it's too early to conclude that Synopsys' new forecast indicates the good times are over for the larger chip industry.

"I don't think the semiconductor cycle is over. I think more than anything, we're just in an uncertain period," said Wassung, who doesn't own shares in Synopsys and whose firm doesn't have banking business with the softwaremaker.

He believes that while Synopsys is facing lower-than-expected new orders, the firm is also facing greater competitive pressure from rivals such as Cadence Design Systems Inc., Magma Design Automation Inc. and Mentor Graphics Corp. The shares of those firms also suffered in after-hours trading, falling 4.36 percent, 8.5 percent and 10.46 percent respectively.

"September has to be a blockbuster month for them to make their (revenue) numbers. ... There's been an inventory build (up) in the (distribution) channel, and if demand doesn't come up sharply, that could impact quarterly results," Walia said.